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PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #3080/01 1632222
ZNR UUUUU ZZH
P 122222Z JUN 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 7462
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS SECTION 01 OF 04 MEXICO 003080 
 
SIPDIS 
 
US MISSION GENEVA 
 
SENSITIVE 
SIPDIS 
 
SECSTATE FOR A/S SHANNON AND DAS JACOBSEN 
SECSTATE FOR WHA/MEX, WHA/ESP, EB/TPP 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GWORD 
TREASURY FOR IA (ALICE FAIBISHENKO) 
SECSTATE PASS TO USTR (EISSENSTAT/MELLE/SHIGETOMI/VETTER) 
SECSTATE PASS TO FEDERAL RESERVE (CARLOS ARTETA) 
USDA FOR FAS/ONA 
NSC FOR DAN FISK 
GENEVA FOR USTR/SHARK 
 
E.O. 12958: N/A 
TAGS: ERTD ECON MX
SUBJECT: MEXICO COMMITTED TO SUCCESSFUL TRADE RELATIONSHIP, 
BUT WORRIED ABOUT DOMESTIC POLITICS 
 
SUMMARY 
------- 
 
¶1. (SBU) The Calderon administration recognizes the vital 
economic role played by a bilateral trade relationship that 
is, on the whole, quite healthy.  Nonetheless, Mexican 
officials are worried about the political implications of a 
growing perception in Mexico that NAFTA implementation is a 
one-way street and used a recent USTR visit to call for 
clear signals ton cross-border trucking, tuna, and 
avocadoes that would counter this perception.  USTR reps 
stressed the need for full Mexican NAFTA implementation and 
highlighted the importance of progress on specific U.S. 
concerns such as access to the conformity assessment 
sector, broadcasting, and intellectual property rights 
(IPR).  GOM officials also raised their concerns about 
MexicoQs, and North AmericaQs, slipping global 
competitiveness and discussed ways to improve regional 
competitiveness.  End summary. 
 
SETTING 
------- 
 
¶2. (SBU) Assistant U.S. Trade Representative for the 
Americas Everett Eissenstat and USTRQs Director for Mexico 
and NAFTA Affairs Kent Shigetomi had meetings with Mexican 
officials from the agriculture ministry (SAGARPA), the 
economics ministry (ECONOMIA), and the Office of the 
Presidency (PRESIDENCIA) during a June 4 visit to Mexico 
City.  They also met with leaders of the American Chamber 
of Commerce.  Embassy reps from the Econ, FCS, and FAS 
sections also took part. 
 
SAGARPA: Hogs, Rice, Dairy, Corn, Beans 
--------------------------------------- 
 
¶4. (SBU) Graciela Aguilar, SAGARPAQs Chief of Support and 
Services for Agricultural Trade, described the pressure she 
is getting from MexicoQs small pork producers for 
protection from U.S. competitors.  She said trade remedies 
were not the answer and that SAGARPA will instead hand out 
emergency subsidy payments to help them deal with higher 
feed prices and increased competition.  Not so with rice. 
Mexico is preparing to request WTO consultations with the 
U.S. regarding our commodity supports for rice.  She said 
that if the pending U.S. Farm Bill is not improved in this 
regard, Mexico will have a strong WTO case that it expects 
to win.  She said the goal would be to push the U.S. toward 
a more WTO-consistent approach.  She said Mexico would 
pursue this case alone, adding that it had rejected an 
offer of counsel from the law firm that represented Brazil 
in its cotton case against the U.S., and which had 
recommended bringing along the same coalition of member 
plaintiffs. 
 
¶5. (SBU) Aguilar then turned to the U.S. dairy market, 
which she termed a Qconfusing mess.Q  She said Mexico 
wanted a working group on dairy issues because the pressing 
issues are not related to either tariffs or sanitary 
concerns.  Three big Mexican dairy producers want to export 
Grade A milk and milk products (including cheese) to 
Mexican communities in the U.S., but differing U.S. state 
rules and lack of clear guidance from the Food and Drug 
Administration continue to stymie their efforts and 
encourage smuggling across the border of low-quality (and 
potentially unsafe) Mexican cheeses.  She said Mexico is 
not currently planning to file a WTO dairy case, but is 
considering this as an eventual option if it cannot get 
access through talks.  While recognizing the peculiarities 
of the U.S. dairy market, AUSTR Eissenstat warned that even 
WTO victories do not always bring about the plaintiffQs 
original desired result.  He said he would inform relevant 
USG authorities of MexicoQs concerns. 
 
¶6. (SBU) In contrast to the corn shortage and price hikes 
 
MEXICO 00003080  002 OF 004 
 
 
that Mexico experienced earlier this year, Aguilar 
predicted that there will be a glut of white corn at the 
end of 2007 and a likely drop in prices.  As a result, 
SAGARPA is planning to subsidize the export of 250,000 
metric tons of corn, mostly to other Latin countries (these 
shipments will receive traditional export subsidies) but 
also including 60,000 metric tons to Canada and the U.S. 
(these shipments will receive transportation subsidies). 
Aguilar foresees a future in which Mexican corn producers 
become increasingly oriented toward export markets, 
predicting a pattern of bilateral corn trade keyed to our 
two countriesQ different harvest schedules and varieties 
(i.e., white corn for human consumption versus yellow corn 
for feed).  Aguilar noted how MexicoQs poor transportation 
infrastructure balkanizes the countryQs corn market, 
leading to outcomes that are irrational from a national 
perspective.  This is exacerbated, she said, by the 
proliferation of small, informal tortilla makers, who are 
inefficient and usually do not even pay taxes.  The 
stagnant demand for tortillas (consumption is very price 
inelastic) also is a factor.  She said Mexico wants to move 
toward less trade-distorting supports for corn farmers, 
i.e., from price supports to payments based on the area 
cultivated.  SAGARPAQs Coordinator for International 
Affairs, Victor Villalobos, noted that SAGARPA will work 
with USDA in a technical assistance project for corn 
farmers in the state of Mexico, and another one aimed at 
converting bean farmers to other crops in the state of 
Zacatecas.  Aguilar said these sorts of projects would help 
deflect criticism from Mexican farmers who complain about 
the lack of an explicit development component in the NAFTA 
and smooth the transition to free trade in these products 
next year. 
 
ECONOMIA 
-------- 
 
¶7. (SBU) The USTR delegation and emboffs subsequently met 
with Beatriz Leycegui, the Sub-Secretary for Trade 
Negotiations at ECONOMIA, Jorge Amigo, the Director General 
of MexicoQs Industrial Property Institute (rough equivalent 
of U.S. Patent and Trademark Office), Ken Smith Ramos, 
ECONOMIAQs Director General for Negotiations, staff from 
ECONOMIAQs regulatory affairs directorate, and other trade 
officials.  Leycegui gave an overview of MexicoQs recently 
unveiled trade policy, which has three main pillars: 1) 
successful conclusion of the Doha Development Agenda trade 
talks; 2) full and final implementation of all NAFTA 
obligations; and 3) increased integration with the rest of 
the Hemisphere to better face rising competition from 
Europe and Asia. 
 
 
ECONOMIA: WHO LOVES NAFTA MORE? 
------------------------------- 
 
¶8. (SBU) With regard to NAFTA, Leycegui highlighted the 
negative impact on trade ties of the recent U.S. federal 
court decision against Mexican tuna, the ongoing attempts 
by the state of California to restrict imports of Mexican 
avocadoes, and continuing delays in the implementation of 
cross-border trucking.  Trucking delays in particular have 
the potential to complicate MexicoQs implementation of free 
trade in the sensitive agricultural sectors of corn, beans, 
milk, and sugar at the start of next year.  She said the 
new Mexican Congress has a strong agricultural lobby, and 
she is scared of a trade backlash based on a growing 
Mexican perception that the U.S., while insisting that 
Mexico comply with its NAFTA obligations, is not committed 
to doing the same.  Leycegui said that a failure to resolve 
these issues could lead Mexico to file more WTO cases. 
 
¶9. (SBU) AUSTR Eissenstat affirmed the AdministrationQs 
commitment to honoring its NAFTA commitments, noting that 
the roadblocks were being erected either by the Congress or 
 
MEXICO 00003080  003 OF 004 
 
 
courts.  He said that we have likely seen the full extent 
of legislative action on the trucking pilot program, and 
said he was reasonably optimistic it would begin soon.  He 
described the AdministrationQs disappointment with the 9th 
Circuit CourtQs ruling on dolphin-safe certification for 
Mexican tuna and said the USG is considering next steps. 
He also raised areas in which Mexico was impeding market 
access to U.S. firms in violation of NAFTA obligations, 
highlighting Mexican attempts to impose extraterritorial 
standards on U.S. tequila products, the two-year struggle 
of Underwriters Laboratory (UL) and Intertek to gain 
permission to operate in MexicoQs conformity assessment 
sector, and the legal harassment faced by GE/NBC in trying 
to enter the television content market.  Eissenstat pointed 
out that the executive branch of the Mexican government had 
the full authority necessary to resolve these issues.  The 
Mexican side responded that the GOM had worked very hard to 
resolve the problems faced by UL and Intertek, but those 
two companies were simply not willing to compromise. 
Eissenstat said he would check back with them.  On 
broadcasting, Leycegui pointed out ECONOMIA per se is not 
responsible for deciding these sorts of issues, which are 
handled by the independent Federal Telecommunications 
Commission (COFETEL).  Eissenstat also raised MexicoQs 
rampant piracy and counterfeiting, and encouraged stronger 
cooperation via the Security and Prosperity Partnership 
(SPP) working group on this issue.  Jorge Amigo said he 
would like to see MexicoQs National Agreement on the 
Protection of IPR linked to the SPP process.  After raising 
U.S. concerns about a precipitous drop in U.S. exports of 
pistachios to Mexico (which ECONOMIA said it would 
investigate), Eissenstat underscored NAFTAQs huge net 
benefits for both Mexico and the U.S. and said the two 
sides needed to focus on the positive.  He and Leycegui 
discussed possible deliverables for the August NAFTA 
ministerial, including a consumer electronics initiative, 
an exchange of letters for implementing a third set of 
changes to the NAFTA rules of origin, and others. 
 
ECONOMIA: TRADE AND HEMISPHERIC COMPETITIVENESS 
--------------------------------------------- -- 
 
¶10. (SBU) Leycegui said the Mexican private sector is not 
enthusiastic about new free trade agreements (FTA), 
preferring to focus on taking full advantage of the many 
Mexico has already entered into, but that President 
Calderon and President Garcia recently committed to 
finalizing the Peru-Mexico deal that has been under 
negotiation for some time.  In view of MexicoQs (and North 
AmericaQs) falling share of international trade, she said 
everyone needed to do a better job of demonstrating the 
concrete benefits of trade to their private sectors.  She 
also said greater hemispheric economic integration is 
essential to improving the regionQs competitiveness, and 
for that reason Mexico is concerned about the flat-line 
pulse of the Free Trade Area of the Americas initiative. 
Eissenstat summarized the state of U.S. regional trade 
policy, emphasizing the current focus on winning 
congressional approval for our bilateral FTAs with Peru, 
Panama, and Colombia.  He said it would be impossible to 
make progress on a regional integration strategy if 
Congress does not renew broad Trade Promotion Authority, 
which expires at the end of this month.  Until then, quiet 
discussions of ideas for further integration were the best 
approach. 
 
PRESIDENCIA Q COMPETITIVENESS AGENDA 
------------------------------------ 
 
¶11. (SBU) The USTR teamQs final meeting was with Felipe 
Duarte, a top official in PRESIDENCIAQs Economic Cabinet. 
Duarte said that MexicoQs macro-economic stability has been 
satisfactory in recent years, but its growth rate has not. 
Trade alone is not the panacea, and Mexico is under the gun 
to show that responsible economic policies can deliver 
 
MEXICO 00003080  004 OF 004 
 
 
clear progress in reducing poverty to counter the negative 
regional trend toward statist approaches.  Duarte described 
President CalderonQs Competitiveness Agenda, which aims at 
the long-term goals of a stronger education system, 
increased capacity to absorb technology, and more 
innovation.  In the short-term, the Agenda focuses on more 
efficient customs procedures, smoother logistics, and 
greater market access for Mexican goods.  He noted that our 
two countries must cooperate bilaterally and under the SPP 
to improve security and facilitate trade across our common 
border, and said that cross-border trucking should be 
viewed in this context, as an important ingredient to more 
efficient movement of goods within North America.  He 
asserted that superior logistics capacity was one of the 
key advantages enjoyed by AsiaQs more dynamic economies. 
 
¶12. (SBU) Staying on the trucking theme, he also echoed 
Sub-Secretary LeyceguiQs request for visible signs of U.S. 
commitment to implementing its more difficult NAFTA 
obligations, noting the growing perception here that Mexico 
is the only one doing the heavy lifting.  Duarte also 
recognized the growing anti-trade sentiment in the U.S. due 
to our huge current account deficit and asked if that could 
pose problems for the bilateral relationship.  Eissenstat 
replied that most economists attribute our deficit to 
macro-economic factors, not trade, but in the world of 
politics the reverse belief has a large following. 
Fortunately for Mexico, China is taking most of the 
political flak on trade from protectionists in the Congress 
and elsewhere.  He asserted that the Administration remains 
committed to free trade, recognizing as it does that 
economic growth among our partners is key to ensuring our 
own long-term prosperity.  Eissenstat said that the overall 
U.S.-Mexico trade relationship is in excellent shape, and 
we have a good track record of dealing pragmatically with 
the problems that crop up. 
 
¶13. (SBU) Again echoing Leycegui, Duarte said we now need 
to look at how North America and the Western Hemisphere fit 
into todayQs globalized world, and that Mexico would 
appreciate any U.S. ideas regarding economic integration in 
the Americas.  Eissenstat expressed willingness to work 
together on regional competitiveness, but advised taking 
the process one step at a time.  He also said the U.S. 
stands ready to lend its assistance to Mexico as it works 
to implement its domestic Competitiveness Agenda, whether 
on telecoms issues, intellectual property rights, 
competition policy, biotech, or alternative energy. 
 
GARZA